Are you overlooking credits for college expenses?

Two federal tax credits - the American Opportunity Credit and the Lifetime Learning Credit - may help offset the costs of higher education for you or your dependents.

To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. Either the parent or the student, but not both, may claim the credit. Students claimed as dependents cannot file for the credit.

For each student, you may claim only one of the credits in a single tax year. For example, you cannot claim the American Opportunity Credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs in the same year.

However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You may claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your spouse's graduate school tuition.

Here are some key facts about these valuable education credits:

The American Opportunity Credit

  • The credit can be up to $2,500 per eligible student.
  • It is available for the first four years of postsecondary education.
  • Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
  • The student must be pursuing an undergraduate degree or other recognized educational credential.
  • The student must be enrolled at least half time for at least one academic period.
  • Qualified expenses include tuition and fees, course-related books, supplies and equipment.
  • The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $80,000 or $160,000 for married couples filing a joint return.

Lifetime Learning Credit

  • The credit can be up to $2,000 per eligible student.
  • It is available for all years of postsecondary education and for courses to acquire or improve job skills.
  • The maximum credit is limited to the amount of tax you must pay on your return.
  • The student does not need to be pursuing a degree or other recognized education credential.
  • Qualified expenses include tuition and fees, course-related books, supplies and equipment.
  • The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $51,000 or $102,000 for married couples filing a joint return.

If you do not qualify for these education credits, you may qualify for the tuition and fees deduction. It can reduce the amount of your income subject to tax by up to $4,000 (for individual taxpayers with adjusted gross income of $65,000 or less and joint filers with adjusted gross income of $130,000 or less).

However, you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to take either the credit or the deduction and should consider which is more beneficial for you.

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